Allahabad High Court last week scrapped the toll levied on commuters using the Delhi-Noida Direct (DND) Flyway, a major traffic artery connecting southeast Delhi with Noida across the Yamuna in Uttar Pradesh. A subsequent bid by the Noida Toll Bridge Company Ltd (NTBCL) — the special purpose vehicle promoted by project sponsor IL&FS to develop, construct, operate and maintain DND — to secure immediate relief from the Supreme Court failed, with the court telling the company that it had not “built a road to the moon”, and that DND would stay toll-free for now.

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DND, a short stretch of less than 10 km, provides quick and easy access between Noida and Delhi, but there have been recurrent complaints that the toll — which was Rs 28 per passage for cars when the High Court order came — is too high, especially when the much longer and busier Gurgaon expressway has been toll-free since 2014.

The Allahabad High Court order came on a public interest petition filed by a body of Noida residents. A Bench of Justice Arun Tandon and Justice Sunita Agrawal considered several aspects of the case before ruling that NTBCL had “recovered all reasonable returns” on its investment, and was no longer entitled to collect toll.

What did the petitioners say in the PIL?

The Federation of Noida Residents’ Welfare Associations had approached the Allahabad High Court in 2012, challenging the levy and collection of “User Fee” by NTBCL from commuters using the 9.2 km, 8 lane Flyway. The petitioners went to court after the toll was raised from Rs 8 to Rs 25 per passage for cars, saying the charge was “excessive”, and the company had already recovered the cost of building the bridge. The PIL also challenged the April 1992 MoU and the November 1997 Concession Agreement between Noida Authority and NTBCL to build the bridge on a Build-Own-Operate-Transfer (BOOT) model.

Since at least 2010, several organisations had been demanding the scrapping of user fees. This August, the toll plaza was forcibly shut down for 2 days by hundreds of protesters. NTBCL went to the Delhi High Court against the protests, but the court declined to intervene.

What were the terms of the contract between NTBCL & Noida?

The Concessionaire Agreement signed by Noida Authority, IL&FS and NTBCL in November 1997 made IL&FS responsible for all investment in the project, which would be recovered from users of the bridge. The Agreement also entitled the company to earn profits at 20% of the total cost per year, until the entire cost was recovered. NTBCL was given the right to decide the user fee, after consultations with the Uttar Pradesh government. DND would be under NTBCL’s control for 30 years from the date of the contract, or until the concessionaire (IL&FS) was able to recover the full cost of investment.

What did NTBCL and IL&FS tell the court?

NTBCL argued that it had been unable to recover the cost of the project in the 15 years since the commissioning of the bridge in February 2001. It alleged the PIL was “proxy litigation” by the Noida Authority, which did not want to fulfill its contractual obligation to pay NTBCL to make up for the shortfall in revenue from user fee. The company also argued that the “risk insurance clauses” in the contract allowed the collection of 20% of the cost of the project, and Noida Authority would have to pay the remaining amount of the total cost and profits if the government decided to terminate the contract. NTBCL informed the court that it had proposed an amendment to the contract, extending the concession period beyond the current cut-off year of 2031, as the company would not be able to recover its costs in this period.

What did the court say about the terms of the contract?

The court struck down Section 14.2 of the contract agreement, which laid down the manner of calculation of the money to be raised from user fee every year. According to the terms of the contract, the total cost of the project would include the actual cost, plus operation and maintenance costs, as well as 20% of the cost of project as “returns” or profits every year. The court held that operation and maintenance costs were “ever increasing”, and the method of calculation of the total project cost was “arbitrary and opposed to public policy”.

The court said that the “risk insurance clause” in the contract was “redundant”, as the concessionaire had already recovered the cost of, and reasonable profits from, the project. The company could not claim that it had been unable to recover its costs, the Bench said.

And what did the court say about the funds demanded by the company?

As per the company’s accounts, it should have been able to collect Rs 2,339.6 crore in 2012, Rs 3,448.9 crore in 2014, and over Rs 5,000 crore in 2016. The Bench observed that the “total cost of Project can never be recovered and the bridge will never be free from levy of Toll”, if the formula for calculation was allowed to continue.

Taking note of the audit reports of the actual expenditures of the company, the court noted that it had recovered approximately Rs 810.18 crore from toll income up to March 2014, while the cost of construction of the flyover and support roads until its commissioning in February 2001 had been around Rs 325 crore. The court observed that even if the O&M costs and other expenditures were to be considered, the company had made a profit of about Rs 300 crore by collecting toll. The court held that NTBCL had “recovered all reasonable returns” from the project and could no longer continue to charge toll.

What about the government’s decisions?

The Bench pulled up Noida Authority and the Ministry of Urban Development for entering into the contract without calling for a public tender, and observed that the project had not resulted in any benefits to the state government. The Bench also observed that NTBCL had been incorporated after the MoU between the Ministry and IL&FS had already been signed. “It is, therefore, writ large on record that a private company was set up to become the Concessionaire on the asking of the IL&FS, for which no reason or justification could be furnished to this Court,” it said. The Bench said there were no legal provisions under which the private operator could have been given the power to decide the user fee.

Does the court order mean the operation of the bridge will now be given back to the government?

No. The court has refused to pass orders on the issue of handing over of the bridge to the government, saying it was looking “only into the public interest issue”, and would not interfere in the contract agreed upon by the government and the company.

Does this order suggest that no toll can be charged for roads and highways elsewhere in the country?

No. The court has only said that the private company that was given the contract on a BOOT basis cannot extract money from users beyond “reasonable revenues”, and that arbitrary calculations of profits and the manner in which the tender was awarded in this case had violated constitutional provisions. This judgment will not have any impact on contractual agreements for roads or bridges built on the PPP (Public-Private Partnership) model, which do not suffer from legal infirmities.